The Reserve Bank should lift the official cash rate tomorrow
from its current 2.5%, the NZIER shadow board says.
Economists are split on whether Reserve Bank governor Graeme
Wheeler should lift rates tomorrow or wait until March.
But the inevitable rise in interest rates will be the first
in nearly three years in New Zealand and push the rate above
that of Australia which is also on 2.5%.
''It's a knife-edge call but increasing interest rates by 25
basis points [0.25%] has the most support,'' New Zealand
Institute of Economic Research senior economist Kirdan Lees
There was some backing for keeping interest rates on hold in
January and waiting until March to lift interest rates, he
That strategy offered Mr Wheeler the chance to use a full
suite of communication tools - including a Monetary Policy
Statement, press conference and Finance and Expenditure
Committee testimony - to tell the public why interest rates
needed to go up.
''The economy is building up steam. Business confidence is
soaring, consumers are ready to spend and the Canterbury
rebuild will pressure inflation higher over 2014 and beyond.
''Loan-to-value restrictions also need help to slow the pace
of house price rises in Auckland. That makes now the time to
start removing monetary policy stimulus by raising interest
rates,'' Dr Lees said.
However, BNZ senior economist Craig Ebert said he was leaning
towards a March hike in the OCR.
The case for hiking tomorrow was ''overwhelming'' but Mr
Ebert believed Mr Wheeler would adhere to his December MPS
word he would leave any first increase in the cash rate until
March or April, at the earliest.
''If we want to split hairs, we could say the bank's
previously published 90-day bank bill track did not obviously
imply a full 25 basis points of tightening until June. So a
hike in January would need a lot of explaining by the bank.''
The housing market was showing tentative signs of slowing in
activity, if not prices.
That was no more moderation than the bank probably expected
and it was certainly not ''crashing and burning'' as some
feared, he said.
The trade-weighted exchange rate was still above Reserve Bank
assumptions - especially with the current surge in the New
Zealand-Australian dollar cross.
''To the extent the Reserve Bank officials are still unduly
concerned about the strong currency, they might worry what a
rate hike might do in the present environment, with liquidity
still potentially affected by the holiday season.
''We don't believe the net weight of evidence and news has
been strong enough to shift the bank's mind all the way into
January to get its stimulus removal process under way.''
While there was a good chance the bank was already late to
the party, it could at least be consistent with its own
framework of assessment at its OCR review tomorrow, Mr Ebert
Today, the Reserve Bank's data on high-LVR lending for
December would be released.
The proportion for November, excluding exemptions, had shrunk
to just 5.8% - the six-month total to March for each
registered bank must come in below 10%.
Mr Ebert would not be surprised by another low result for
December, especially with the Reserve Bank now exempting
lending for new builds.
Also, exemptions through the existing government-sponsored
Welcome Home scheme, which recently relaxed its thresholds,
looked to be gaining favour.
December's building trends will be released tomorrow. While
they were believed to be positive for December, they might
struggle in respect to residential consents, following
November's apartment spike, he said.
December's migration and tourism numbers were likely to
remain ''unequivocally positive''.